The Impact of Water Quality Policies on Innovation in Nitrogen and Phosphorus Technology in Sweden

Tobias Häggmark Svensson, Katarina Elofsson

 

Department of Economics, Box 7013, Swedish University of Agricultural Sciences, SE-750 07 Uppsala, Sweden

 

We examine the effects on innovation of environmental regulations aimed at reducing eutrophication. This study focusses on the wastewater treatment sector and the agricultural sector and utilises patent data from Sweden over a 50-year period as a measure of innovation. We estimate a negative binomial regression model in a reduced form and use a two-stage equation setting, controlling for environmental regulation as well as more general determinants of innovation. Our results suggest that increased regulation has induced innovation in the wastewater treatment sector, both in the long and short run. The short-run effect was approximated to 40-70% in the years immediately following the introduction of new environmental regulations. A corresponding effect could not be identified in the agricultural sector. The differences in findings between the sectors are likely explained by differences in policy design, where performance standards are usually applied in the wastewater sector, while design standards and measure-specific subsidies dominate in the agricultural sector.